Operator Of Bitcoin Investment Platform Charged With Perjury And Obstruction Of Justice

Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that JON E. MONTROLL, a/k/a “Ukyo” was taken into federal custody today for giving false sworn testimony and false documentation to the staff of the New York Regional Office of the Securities Exchange Commission (“SEC”). The defendant is expected to be presented this afternoon in U.S. District Court for the Northern District of Texas, before U.S. Magistrate Judge Jeffrey L. Cureton.

Manhattan U.S. Attorney Geoffrey S. Berman said: “SEC investigations rely on learning the full and accurate facts concerning financial markets and products. As alleged, the defendant repeatedly lied during sworn testimony and misled SEC staff to avoid taking personal responsibility for the loss of thousands of his customers’ bitcoins. These charges signify that we will use the full force of the federal criminal law to protect the integrity of the SEC’s investigative process.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “As alleged, Montroll committed a serious crime when he lied to the SEC during sworn testimony. In an attempt to cover up the results of a hack that exploited weaknesses in the programming code of his company, he allegedly went to great lengths to prove the balance of bitcoins available to BitFunder users in the WeExchange Wallet was sufficient to cover the money owed to investors. It’s said that honesty is always the best policy – this is yet another case in which this virtue holds true.”

According to the allegations in the Complaint filed today in Manhattan federal court:[1]

During the summer of 2013, one or more individuals (the “Hackers”) exploited a weakness in the BitFunder programming code to cause BitFunder to credit the Hackers with profits they did not, in fact, earn (the “Exploit”). As a result, the Hackers were able to wrongfully withdraw from WeExchange approximately 6,000 bitcoins, with the majority of those coins being wrongfully withdrawn between July 28, 2013, and July 31, 2013. In today’s value, the wrongfully withdrawn bitcoin were worth more than $60 million. As a result of the Exploit, BitFunder and WeExchange lacked the bitcoins necessary to cover what MONTROLL owed to users.

In November 2013, MONTROLL provided sworn testimony to the SEC’s New York Regional Office in connection with their investigation into the Exploit and BitFunder’s activities. In that testimony, MONTROLL denied that the Exploit had been successful, testifying that, “When [the Hackers] went to withdraw, the system stopped them because the amount was obviously causing issues with the system.” MONTROLL later added that the software issue “was corrected immediately, whenever the system started having the problems, and I caught on to what was happening I’d say within a few hours.”

MONTROLL also produced to the SEC a screenshot purportedly documenting, among other things, the total number of bitcoins available to BitFunder users in the WeExchange Wallet as of October 13, 2013 (the “Balance Statement”). The Balance Statement reflected “6,679.78 BTC” on hand as of that date. In discussing the Balance Statement in his sworn testimony, MONTROLL explained that it represented “the collective pool of funds held for users on BitFunder. The collective pool of BTC held for users on BitFunder – users who transfer bitcoins to BitFunder, this is the total amount that’s being held by BitFunder of those users.”

Contemporaneous digital evidence, including chat logs and transaction data, revealed that the Balance Statement was a misleading fabrication. Three days into the Exploit, MONTROLL had participated in an internet relay chat with another person (“Person-1”) in which he sought help in tracking down “Stolen coins.” When that did not work, MONTROLL transferred some of his own bitcoin holdings into WeExchange to conceal the losses. The Exploit, however, continued. By the time of the Balance Statement, WeExchange actually held thousands of bitcoins less than MONTROLL had asserted through the false Balance Statement.

When confronted with that evidence during subsequent testimony, MONTROLL lied to SEC staff again. While MONTROLL admitted that the Balance Statement was the product of his manual intervention in the WeExchange system, he claimed to have discovered the success of the Exploit only after the SEC had asked him about it during his first day of testimony and to have no knowledge of the chat with Person-1.

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MONTROLL, 37, of Saginaw, Texas, is charged with two counts of perjury and one count of obstruction of justice. The perjury counts each carry a maximum penalty of five years in prison. The obstruction of justice count carries a maximum penalty of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Berman praised the outstanding work of the FBI. He also thanked the SEC, which has filed civil charges against MONTROLL in a separate action.

The prosecution of this case is being overseen by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Andrew Thomas is in charge of the case.

The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

[1] As the introductory phrase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.